UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549








FORM
10-Q





(Mark
One)





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
thirteen weeks ended September 26,
2009





o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from _______to _______








Commission
File Number 1-5084





TASTY
BAKING COMPANY


(Exact
name of Company as specified in its charter)







Pennsylvania
            23-1145880(State of
      Incorporation)
            (IRS Employer
      Identification Number)











Navy
Yard Corporate Center, Three Crescent Drive, Suite 200, Philadelphia,
Pennsylvania  19112


(Address
of principal executive offices including Zip Code)





215-221-8500


(Company's
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


YES x  NO o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


YES o  NO o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.


Large accelerated
filer    o                                                  Accelerated
filer                   
o


Non-accelerated
filer      o                                                  Smaller
reporting company   x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


YES o     NO
x





There were
8,562,756 shares of Common Stock outstanding as of November 2,
2009.


TASTY
BAKING COMPANY AND SUBSIDIARIES
 
 
 INDEX
 
  PART
      I.
                
                FINANCIAL INFORMATIONItem
      1.
                
                Financial Statements (Unaudited)Condensed Consolidated Statements of
      OperationsThirteen and thirty-nine weeks ended September 26, 2009
      and September 27, 2008
                3Condensed Consolidated Statements of Cash
      FlowsThirty-nine weeks ended September 26, 2009 and September
      27, 2008
                4Condensed Consolidated Balance SheetsSeptember 26, 2009 and December 27, 2008
                5Notes to Condensed Consolidated Financial
      Statements
                6-20Item
      2.
                
                Management's Discussion and Analysis of
    FinancialCondition and Results of Operations
                21-26Item
      3.
                
                Quantitative and Qualitative Disclosure about Market
      Risk
                27Item
      4.
                
                Controls and Procedures
                27PART II.
                
                OTHER INFORMATIONItem
      6.
                
                Exhibits
                28Signature
                
                
                29
   -2-
 
 PART I.
      FINANCIAL INFORMATIONItem 1.     Financial
    StatementsTASTY BAKING COMPANY AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(000's,
      except per share amounts)For
      the Thirteen Weeks Ended
                  
                  
                  For
      the Thirty-nine Weeks EndedSeptember
      26, 2009
                  
                  
                  September
      27, 2008
                  
                  
                  September
      26, 2009
                  
                  
                  September
      27, 2008Gross
      sales
                  
                  
                  $
                  74,056
                  
                  
                  $
                  69,147
                  
                  
                  $
                  229,517
                  
                  
                  $
                  210,620Less
      discounts and allowances
                  
                  
                  
                  (30,472
                  )
                  
                  
                  (26,342
                  )
                  
                  
                  (92,813
                  )
                  
                  
                  (80,401
                  )Net
      sales
                  
                  
                  
                  43,584
                  
                  
                  
                  42,805
                  
                  
                  
                  136,704
                  
                  
                  
                  130,219Costs
      and expenses:Cost
      of sales, exclusive of depreciation shown below
                  
                  
                  28,670
                  
                  
                  
                  28,367
                  
                  
                  
                  86,042
                  
                  
                  
                  86,353Depreciation
                  
                  
                  
                  3,486
                  
                  
                  
                  3,484
                  
                  
                  
                  10,045
                  
                  
                  
                  9,583Selling,
      general and administrative
                  
                  
                  
                  12,489
                  
                  
                  
                  11,168
                  
                  
                  
                  37,560
                  
                  
                  
                  35,172Interest
      expense
                  
                  
                  
                  720
                  
                  
                  
                  545
                  
                  
                  
                  1,870
                  
                  
                  
                  1,509Other
      (income) expense, net
                  
                  
                  
                  (873
                  )
                  
                  
                  1,484
                  
                  
                  
                  (1,256
                  )
                  
                  
                  1,09144,492
                  
                  
                  
                  45,048
                  
                  
                  
                  134,261
                  
                  
                  
                  133,708Income
      (loss) before provision forincome
      taxes
                  
                  
                  
                  (908
                  )
                  
                  
                  (2,243
                  )
                  
                  
                  2,443
                  
                  
                  
                  (3,489
                  )Provision
      for income taxes
                  
                  
                  
                  (377
                  )
                  
                  
                  (891
                  )
                  
                  
                  700
                  
                  
                  
                  (1,253
                  )Net
      income (loss)
                  
                  
                  $
                  (531
                  )
                  
                  $
                  (1,352
                  )
                  
                  $
                  1,743
                  
                  
                  $
                  (2,236
                  )Average
      common shares outstanding:Basic
                  
                  8,064
                  
                  
                  
                  8,046
                  
                  
                  
                  8,061
                  
                  
                  
                  8,043Diluted
                  
                  8,064
                  
                  
                  
                  8,046
                  
                  
                  
                  8,061
                  
                  
                  
                  8,043Per
      share of common stock:Net
      income (loss):Basic
                  $
                  (0.07
                  )
                  
                  $
                  (0.17
                  )
                  
                  $
                  0.21
                  
                  
                  $
                  (0.28
                  )Diluted
                  $
                  (0.07
                  )
                  
                  $
                  (0.17
                  )
                  
                  $
                  0.21
                  
                  
                  $
                  (0.28
                  )Cash
      dividend
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.15
                  
                  
                  $
                  0.15
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
  -3-
  TASTY BAKING COMPANY AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(000's)For
      the Thirty-nine Weeks EndedSeptember
      26, 2009
                  
                  
                  September
      27, 2008Cash
      flows from (used for) operating activitiesNet
      income (loss)
                  
                  $
                  1,743
                  
                  
                  $
                  (2,236
                  )Adjustments
      to reconcile net income (loss) to netcash
      provided by operating activities:Depreciation
                  
                  
                  10,045
                  
                  
                  
                  9,583Amortization
                  
                  
                  276
                  
                  
                  
                  253Asset
      retirement obligation interest
                  
                  
                  294
                  
                  
                  
                  278(Gain)
      loss on sale of plant, property and equipment
                  
                  
                  (9
                  )
                  
                  
                  -Reserve
      for restructure
                  
                  
                  (715
                  )
                  
                  
                  1,652Defined
      benefit pension expense
                  
                  
                  934
                  
                  
                  
                  (282
                  )Pension
      contributions
                  
                  
                  (1,792
                  )
                  
                  
                  (1,360
                  )(Increase)
      decrease deferred taxes
                  
                  
                  1,038
                  
                  
                  
                  (1,250
                  )Post
      retirement medical
                  
                  
                  (4,107
                  )
                  
                  
                  (1,277
                  )Other
                  
                  
                  (3,555
                  )
                  
                  
                  (1,166
                  )Changes
      in assets and liabilities:Decrease
      (increase) in receivables
                  
                  
                  96
                  
                  
                  
                  (4,866
                  )(Increase)
      decrease in inventories
                  
                  
                  (475
                  )
                  
                  
                  318Decrease
      (increase) in prepayments, deferred taxes and other
                  
                  
                  714
                  
                  
                  
                  (1,450
                  )Increase
      in accrued taxes
                  
                  
                  (729
                  )
                  
                  
                  (26
                  )Decrease
      in accounts payable, accrued payroll and other current
      liabilities
                  
                  
                  (26
                  )
                  
                  
                  (2,057
                  )Net
      cash from (used for) operating activities
                  
                  
                  3,732
                  
                  
                  
                  (3,886
                  )Cash
      flows from (used for) investing activitiesPurchase
      of property, plant and equipment
                  
                  
                  (34,080
                  )
                  
                  
                  (27,392
                  )Independent
      sales distributor loan repayments
                  
                  
                  2,401
                  
                  
                  
                  2,266Loans
      to independent sales distributors
                  
                  
                  (2,068
                  )
                  
                  
                  (2,484
                  )Proceeds
      from sale of property, plant and equipment
                  
                  
                  24
                  
                  
                  
                  -Other
                  
                  
                  (202
                  )
                  
                  
                  (138
                  )Net
      cash used for investing activities
                  
                  
                  (33,925
                  )
                  
                  
                  (27,748
                  )Cash
      flows from (used for) financing activitiesDividends
      paid
                  
                  
                  (1,278
                  )
                  
                  
                  (1,244
                  )Increase
      in long-term debt
                  
                  
                  108,517
                  
                  
                  
                  98,729Net
      increase (decrease) in short-term debt
                  
                  
                  -
                  
                  
                  
                  1,000Payment
      on long-term debt
                  
                  
                  (77,163
                  )
                  
                  
                  (69,826
                  )Net
      increase in cash overdraft
                  
                  
                  149
                  
                  
                  
                  2,963Net
      cash from financing activities
                  
                  
                  30,225
                  
                  
                  
                  31,622Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  32
                  
                  
                  
                  (12
                  )Cash
      and cash equivalents, beginning of year
                  
                  
                  58
                  
                  
                  
                  57Cash
      and cash equivalents, end of period
                  
                  $
                  90
                  
                  
                  $
                  45Supplemental
      Cash Flow InformationNon-cash
      capital expenditures
                  
                  $
                  2,150
                  
                  
                  $
                  -
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
  
 -4-
 
 TASTY BAKING COMPANY AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETS(Unaudited)(000's)September
      26, 2009
                  
                  
                  December
      27, 2008AssetsCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  90
                  
                  
                  $
                  58Receivables,
      less allowance of$3,242 and
      $2,862, respectively
                  
                  
                  21,423
                  
                  
                  
                  21,519Inventories
                  
                  
                  7,665
                  
                  
                  
                  7,190Deferred
      income taxes
                  
                  
                  2,445
                  
                  
                  
                  2,707Prepayments
      and other
                  
                  
                  3,162
                  
                  
                  
                  3,200Total
      current assets
                  
                  
                  34,785
                  
                  
                  
                  34,674Property,
      plant and equipment:Land
                  
                  
                  1,433
                  
                  
                  
                  1,433Buildings
      and improvements
                  
                  
                  54,753
                  
                  
                  
                  52,052Machinery
      and equipment
                  
                  
                  136,766
                  
                  
                  
                  132,609Construction
      in progress
                  
                  
                  65,762
                  
                  
                  
                  37,412258,714
                  
                  
                  
                  223,506Less
      accumulated depreciation and amortization
                  
                  
                  134,882
                  
                  
                  
                  125,218123,832
                  
                  
                  
                  98,288Other
      assets:Long-term
      receivables from independent sales distributors
                  
                  
                  9,523
                  
                  
                  
                  9,817Deferred
      income taxes
                  
                  
                  13,150
                  
                  
                  
                  13,088Miscellaneous
                  
                  
                  9,145
                  
                  
                  
                  3,33031,818
                  
                  
                  
                  26,235Total
      Assets
                  
                  $
                  190,435
                  
                  
                  $
                  159,197LiabilitiesCurrent
      liabilities:Accounts
      payable
                  
                  $
                  9,177
                  
                  
                  $
                  7,641Accrued
      payroll and employee benefits
                  
                  
                  6,275
                  
                  
                  
                  5,182Cash
      overdraft
                  
                  
                  2,919
                  
                  
                  
                  2,770Current
      obligations under capital leases
                  
                  
                  893
                  
                  
                  
                  720Notes
      payable, banks and current portion of long-term debt
                  
                  
                  1,000
                  
                  
                  
                  1,000Reserve
      for restructure
                  
                  
                  937
                  
                  
                  
                  -Other
      current liabilities
                  
                  
                  5,146
                  
                  
                  
                  6,419Total
      current liabilities
                  
                  
                  26,347
                  
                  
                  
                  23,732Accrued
      pension
                  
                  
                  27,378
                  
                  
                  
                  27,921Asset
      retirement obligation
                  
                  
                  7,344
                  
                  
                  
                  7,050Long-term
      debt
                  
                  
                  88,403
                  
                  
                  
                  57,194Long-term
      obligations under capital leases, less current portion
                  
                  
                  1,171
                  
                  
                  
                  1,199Postretirement
      benefits other than pensions
                  
                  
                  -
                  
                  
                  
                  2,226Reserve
      for restructure
                  
                  
                  -
                  
                  
                  
                  1,652Other
      non-current liabilities
                  
                  
                  7,366
                  
                  
                  
                  5,256Total
      liabilities
                  
                  
                  158,009
                  
                  
                  
                  126,230Shareholders'
      equityAccumulated
      other comprehensive income (loss)
                  
                  
                  (7,105
                  )
                  
                  
                  (5,599
                  )Capital
      in excess of par value of stock
                  
                  
                  28,209
                  
                  
                  
                  28,699Common
      stock, par value $0.50 per share, and entitled to one
                  
                  
                  4,558
                  
                  
                  
                  4,558vote
      per share: Authorized 30,000 shares, issued 9,116 shares, outstanding
      8,563 sharesRetained
      earnings
                  
                  
                  17,119
                  
                  
                  
                  16,653Treasury
      stock, at cost
                  
                  
                  (10,355
                  )
                  
                  
                  (11,344
                  )Total
      shareholders' equity
                  
                  
                  32,426
                  
                  
                  
                  32,967Total
      Liabilities and Shareholders' Equity
                  
                  $
                  190,435
                  
                  
                  $
                  159,197
 
   -5-
 
 Notes to
Condensed Consolidated Financial Statements
 All
disclosures are pre-tax, unless otherwise noted.
 
 1.      Summary
of Significant Accounting Policies
 
  Nature
of the Business
 Tasty
Baking Company (the “Company”) is a leading producer of sweet baked goods and
one of the nation’s oldest and largest independent baking companies, in
operation since 1914.  It has two manufacturing facilities, one in
Philadelphia, PA, and a second in Oxford, PA.
 
 Fiscal
Year
 The
Company and its subsidiaries operate on a 52-53 week fiscal year, ending on the
last Saturday of December.  Fiscal year 2009 is a 52-week
year.  Fiscal year 2008 was a 52-week year.
 
 Basis
of Presentation
 The
condensed consolidated financial statements include the accounts of the Company
and its subsidiaries.  All intercompany accounts and transactions have
been eliminated.
 
 The
condensed consolidated financial statements included herein have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission.  Certain information and footnote disclosures
normally included in financial statements, prepared in accordance with generally
accepted accounting principles in the United States of America (“GAAP”), have
been condensed or omitted pursuant to such rules and
regulations.  In the opinion of the Company, the accompanying
unaudited condensed consolidated interim financial statements reflect all
adjustments, consisting of only normal recurring items, which are necessary for
a fair presentation of the results of operations for the periods shown. 
The results of operations for such periods are not necessarily indicative of the
results expected for the full year or for any future period.
 
 Use of
Estimates
 The
preparation of condensed consolidated financial statements in conformity with
GAAP requires management to make estimates, judgments and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities.  On an on-going
basis, the Company evaluates its estimates, including those related to customer
sales, discounts and allowances, long-lived asset impairment, indefinite-lived
asset impairment, pension and postretirement plan assumptions, workers’
compensation expense and income taxes.  Actual results may differ from
these estimates.
 
 Concentration of
Credit
 The
Company has, in the normal course of business, exposure to concentrations of
credit risk with respect to trade receivables.  Ongoing credit
evaluations of customers’ financial conditions are performed and, generally, no
collateral is required.  The Company maintains reserves for potential
credit losses and such losses, in the aggregate, have not exceeded management’s
expectations.
 
 Revenue
Recognition
 Revenue is
recognized when title and risk of loss pass, which is upon receipt of goods by
the independent sales distributors, retailers or third-party
distributors.  For route sales, the Company sells to independent sales
distributors who, in turn, sell to retailers.  Revenue from sales to
independent sales distributors is recognized upon receipt of the product by the
distributor.  For sales made directly to a customer or a third-party
distributor, revenue is recognized upon receipt of the products by the retailer
or third-party distributor.
 
 Sale
of Routes
 Sales
distribution routes are primarily owned by independent sales distributors who
purchase the exclusive right to sell and distribute Tastykake® products in
defined geographic areas.  When the Company sells routes to
independent sales distributors, it recognizes a gain or loss on the
sale.  Routes sold by the Company are either existing routes that the
Company has previously purchased from an independent sales distributor or newly
established routes in new geographic areas.  Any gain or loss recorded
by the Company is based on the difference between the sales price and the
carrying value of the route.  The Company recognizes gains or losses
on sales of routes when all material services or conditions related to the sale
have been substantially performed or satisfied by the Company.  In
most cases, the Company will finance a portion of the purchase price with
interest bearing notes, which are required to be repaid in
full.  Interest rates on the notes are based on Treasury or LIBOR
yields plus a spread.  The Company has no obligation to repurchase a
route but may
choose to do so to facilitate a change in route
ownership.
 -6-
 
 Sales
distribution routes owned by the Company are considered to have an indefinite
life and are reviewed for impairment at least annually or whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.  Any potential impairment is recognized when the fair
value of the route is less than its net carrying value. As of September 26, 2009
and December 27, 2008, the net carrying values of sales distribution routes
owned by the Company were $2.1 million and $1.9 million,
respectively.
 
 Cash
and Cash Equivalents
 The
Company considers all investments with an original maturity of three months or
less on their acquisition date to be cash equivalents.  Cash
overdrafts are recorded within current liabilities.  Cash flows
associated with cash overdrafts are classified as financing
activities.
 
 Inventory
Valuation
 Inventories,
which include material, labor and manufacturing overhead, are stated at the
lower of cost or market, cost being determined using the first-in, first-out
(“FIFO”) method.  Inventory balances for raw materials, work in
progress and finished goods are regularly analyzed and provisions for excess and
obsolete inventory are recorded, as necessary, based on the forecast of product
demand and production requirements.
 
 Property
and Depreciation
 Property,
plant and equipment are recorded at cost.  Depreciation is computed
using the straight-line method over the estimated useful lives of the assets or
the applicable lease term, when appropriate.  Buildings and
improvements, machinery and equipment, and vehicles are depreciated over
thirty-nine years, seven to fifteen years, and five to ten years, respectively,
except where a shorter useful life is necessitated by the Company’s decision to
relocate its Philadelphia operations.  Capitalized computer hardware
and software is depreciated over five years.  Spare parts are
capitalized as part of machinery and equipment and are expensed as utilized or
capitalized as part of the relevant fixed asset.  Spare parts are
valued using a moving average method and are reviewed for potential obsolescence
on a regular basis.  Reserves are established for all spare parts that
are no longer usable and have no fair market value.
 
 Costs of
major additions, replacements and betterments are capitalized, while maintenance
and repairs, which do not improve or extend the life of the respective assets,
are expensed as incurred.  For significant projects, the Company
capitalizes interest and labor costs associated with the construction and
installation of plant and equipment and significant information technology
development projects.
 
 Long-lived
assets are reviewed for impairment at least annually or whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.  In instances where the carrying amount may not be
recoverable, the review for potential impairment utilizes estimates and
assumptions of future cash flows directly related to the asset.  For
assets where there is no plan for future use, the review for impairment includes
estimates and assumptions of the fair value of the asset, which is based on the
best information available.  These assets are recorded at the lower of
their book value or fair value.
 
 The
Company has a conditional asset retirement obligation related to asbestos in its
Philadelphia manufacturing facility.  As a result of the Company’s
decision to relocate its Philadelphia operations, it was able to estimate a
settlement date for the asset retirement obligation and recognized a liability
for this obligation.  This obligation will continue to accrete to the
full value of the future obligation over the remaining period until settlement
of the obligation which is expected to occur in June 2010, while the capitalized
asset retirement cost is depreciated through December 2044, the remaining useful
life of the Philadelphia manufacturing facility.  During the thirteen
and thirty-nine weeks ended September 26, 2009, the Company recorded $0.1
million and $0.3 million in interest associated with the conditional asset
retirement obligation, respectively.  During the thirteen and
thirty-nine weeks ended September 27, 2008, the Company also recorded $0.1
million and $0.3 million in interest associated with the conditional asset
retirement obligation, respectively.   As of September 26, 2009
and December 27, 2008, the conditional asset retirement obligation totaled $7.3
million and $7.0 million, respectively.
 
 Grants
 The
Company receives grants from various government agencies for employee training
purposes.  Expenses for training are recognized in the Company’s
Statement of Operations at the time the training takes place.  When
the proper approvals are given and funds are received from the government
agencies, the Company records an offset to the training expense already
recognized.
 -7-
 
 In 2007,
in connection with the decision to relocate its Philadelphia manufacturing
operations, the Company received a $0.6 million grant from the Department of
Community and Economic Development of the Commonwealth of Pennsylvania
(“DCED”).  The opportunity grant has certain spending, job retention
and nondiscrimination conditions with which the Company must
comply.  The Company accounted for this grant under the deferred
income approach and will amortize the deferred income over the same period as
the useful life of the asset acquired with the grant.  The asset
acquired with the grant is expected to be placed into service when the new
manufacturing facility becomes fully operational in 2010.
 
 In 2006,
in conjunction with The Reinvestment Funds, Allegheny West Foundation and the
DCED, the Company activated Project Fresh Start (the “Project”).  The
Project is an entrepreneurial development program that provides an opportunity
for qualified minority entrepreneurs to purchase routes from independent sales
distributors.  The source of grant monies for this program is the
DCED.  The grants are used by minority applicants to partially fund
their purchase of an independent sales distribution route.
 
 Because
the Project’s grant funds merely pass through the Company in its role as an
intermediary, the Company records an offsetting asset and liability for the
total amount of grants as they relate to the Project.  There is no
statement of operations impact related to the establishment of, or subsequent
change to, the asset and liability amounts.
 
 Marketing
Costs
 The
Company expenses marketing costs, which include advertising and consumer
promotions, either as they are incurred or over the period in which the future
benefits are expected to be received.  Marketing costs are included as
a part of selling, general and administrative expense.
 
 Computer
Software Costs
 The
Company capitalizes certain costs, such as software coding, installation and
testing that are incurred to purchase or create and implement internal use
computer software.  The majority of the Company’s capitalized software
relates to the implementation of the enterprise resource planning
system,  the handheld computer system, as well as various
upgrades and enhancements to existing software.
 
 Freight,
Shipping and Handling Costs
 Outbound
freight, shipping and handling costs are included as a part of selling, general
and administrative expense.  Inbound freight, shipping and handling
costs are capitalized with inventory and expensed with cost of
sales.
 
 Pension
Plan
 The
Company’s funding policy for the pension plan is to contribute amounts
deductible for federal income tax purposes plus such additional amounts, if any,
as the Company’s actuarial consultants advise to be
appropriate.  Effective January 1, 2008, the Company was required to
make quarterly contributions under the Pension Protection Act of
2006.  The Company will make four quarterly contributions in 2009
totaling $2.4 million.  As of September 26, 2009, the Company had made
three of the four required contributions, totaling $1.8 million.  In
1987 the Company elected to immediately recognize all gains and losses in excess
of the pension corridor, which is equal to the greater of ten percent of the
accumulated pension benefit obligation or ten percent of the market-related
value of plan assets.
 
 The
Company accrues normal periodic pension expense or income during the year based
upon certain assumptions and estimates.  These estimates and
assumptions include discount rate, rate of return on plan assets, compensation
increases, mortality and employee turnover.  In addition, the rate of
return on plan assets is directly related to changes in the equity and credit
markets, which can be and have been volatile.  The use of estimates
and assumptions, market volatility and the Company’s election to immediately
recognize all gains and losses in excess of its pension corridor in the current
year may cause the Company to experience significant changes in its pension
expense or income from year to year.  Expense or income that falls
outside the corridor is recognized only in the fourth quarter of each
year.
 
 The
Company maintains a liability on its Balance Sheet equal to the under-funded
status of its defined benefit and other postretirement benefit
plans.
 
 Accounting
for Derivative Instruments
 The
Company has entered into certain variable-to-fixed interest rate swap contracts
and foreign currency forward contracts to hedge against fluctuations in interest
rates and foreign currency exchange rates, respectively.
 -8-
 Treasury
Stock
 Treasury
stock is recorded at cost.  Cost is determined by the FIFO
method.
 
 Accounting
for Income Taxes
 The
Company accounts for income taxes under the asset and liability
method.  Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates in effect when the differences are
expected to be recovered or settled.
 
 Net
Income Per Common Share
 Net income
per common share is presented as basic and diluted earnings per
share.  Net income per common share – basic represents the earnings
for the period available to each share of common stock outstanding during the
reporting period.  Net income per common share – diluted represents
the amount of earnings for the period available to each share of common stock
outstanding during the reporting period and to each share that would have been
outstanding assuming the issuance of common shares for all dilutive potential
common shares outstanding during the reporting period.  For the
thirteen and thirty-nine weeks ended September 26, 2009, options to purchase
common stock totaling 316,725 and 317,042, respectively, were not included in
the calculation of net income per common share – diluted since the exercise
price per share exceeded the actual price per share during the periods
presented.  For the thirteen and thirty-nine weeks ended September 27,
2008, options to purchase common stock totaling 491,804 and 538,591,
respectively, were not included in the calculation of net income per common
share – diluted since the exercise price per share exceeded the actual price per
share during the periods presented.
 
 
 Thirteen
      Weeks Ended
                
                
                Thirty-nine
      Weeks EndedSeptember
      26, 2009
                
                
                September
      27, 2008
                
                
                September
      26, 2009
                
                
                September
      27, 2008Income
                  (Loss)
                
                
                Shares
                
                
                Income
                  (Loss)
                
                
                Shares
                
                
                Income
                  (Loss)
                
                
                Shares
                
                
                Income
                  (Loss)
                
                
                SharesNet
      income (loss)
                
                $
                (531
                )
                
                
                
                
                $
                (1,352
                )
                
                
                
                
                $
                1,743
                
                
                
                
                
                $
                (2,236
                )Less:Income
      attributable to participating securities
                
                
                (19
                )
                
                
                
                
                
                (13
                )
                
                
                
                
                
                (83
                )
                
                
                
                
                
                (44
                )Net
      income (loss) available for common
                  shareholders
                
                $
                (550
                )
                
                
                
                
                $
                (1,365
                )
                
                
                
                
                $
                1,660
                
                
                
                
                
                $
                (2,280
                )Net
      income (loss) per common share - basic
                
                
                (0.07
                )
                
                
                8,064
                
                
                
                (0.17
                )
                
                
                8,046
                
                
                
                0.21
                
                
                
                8,061
                
                
                
                (0.28
                )
                
                
                8,043Net
      income (loss) per common share - diluted
                
                
                (0.07
                )
                
                
                8,064
                
                
                
                (0.17
                )
                
                
                8,046
                
                
                
                0.21
                
                
                
                8,061
                
                
                
                (0.28
                )
                
                
                8,043
 
 The
Company has determined that the calculation of net income per common share –
basic includes all securities that are also required by the net income per
common share – diluted calculation, and therefore are the same for all periods
presented.
 
 Share-based
Compensation
 Share-based
compensation expense recognized during the current period is based on the value
of the portion of share-based payment awards that is ultimately expected to
vest.  The total value of compensation expense for restricted stock is
equal to the closing market price of Tasty Baking Company shares on the date of
grant.  Forfeitures are required to be estimated at the time of grant
in order to estimate the amount of share-based awards that will ultimately
vest.  The forfeiture rate is based on the Company’s historical
forfeiture experience.  The Company calculated its historical pool of
windfall tax benefits.
 
 Recent
Accounting Statements
 In
February 2008, the FASB issued guidance on the effective date for implementing
the accounting for fair value measurements (formerly referred to as “FASB Staff
Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement
No. 157”).  This
guidance permits a delay in the effective date of the fair value measurements
guidance to fiscal years beginning after November 15, 2008, for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the  financial statements on
a recurring basis (at least annually). The delay was intended to allow the Board
and constituent’s additional time to consider the effect of various
implementation issues that had arisen from the application of the fair value
measurements guidance.  The FASB also issued guidance on the
applicability of fair value measurements to leases (formerly referred to as “FSP
FAS 157-1, Application of
FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement
under Statement 13”), to exclude certain  accounting
pronouncements from the scope of the fair value measurements
guidance.  The Company adopted the provisions of this guidance in the
quarter ended March 28, 2009.  The required provisions did not have a
material impact on the Company’s condensed consolidated financial
statements.
 -9-
  In
December 2007, the FASB issued guidance on accounting for business combinations
(formerly referred to as “Statement No. 141 (Revised 2007), Business
Combinations”).  The business combination guidance
significantly changes the accounting for business combinations in a number of
areas including the treatment of contingent consideration, acquired
contingencies, transaction costs, in-process research and development and
restructuring costs.  In addition, changes in an acquired entity's
deferred tax assets and uncertain tax positions after the measurement period
impact income tax expense.  The business combination guidance applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning after
December 15, 2008.  Earlier adoption was
prohibited.  The Company adopted the business combination guidance in
the quarter ended March 28, 2009.  The adoption did not have a
material impact on the Company’s condensed consolidated financial
statements.
 
 In
December 2007, the FASB issued guidance on accounting for noncontrolling
interests in a subsidiary (formerly referred to as “Statement No. 160,
Noncontrolling Interests in
Consolidated Financial Statements—An Amendment of ARB
No. 51”), which establishes new accounting and reporting standards
for the noncontrolling interest in a subsidiary, changes in a parent's ownership
interest in a subsidiary and the deconsolidation of a subsidiary. This guidance
is effective for fiscal years beginning after December 15,
2008.  Earlier adoption was prohibited.  The Company adopted
this guidance for the quarter ended March 28, 2009.  The adoption did
not have a material impact on the Company’s condensed consolidated financial
statements.
 
 In March
2008, the FASB issued guidance on the disclosures of derivative instruments
(formerly referred to as “Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities—An Amendment of FASB Statement No. 133”).  This
guidance requires entities to provide greater transparency about (a) how
and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, results of operations, and cash flows. This guidance is effective for
fiscal years and interim periods beginning after November 15,
2008.  The Company adopted these provisions in the quarter ended March
28, 2009.  Because this guidance applies only to financial statement
disclosures, the adoption did not have a material impact on the Company’s
condensed consolidated financial statements.
 
 In June
2008, the FASB issued guidance on the accounting for certain share-based
payments in the calculation of earnings per share (formerly referred to as “FSP
No. EITF 03-06-01, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities”),which classifies unvested share-based payment
awards that contain non-forfeitable rights to dividends or dividend equivalents
as participating securities and requires them to be included in the computation
of earnings per share under the two-class method.  This guidance is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years and requires all prior
period earnings per share data presented to be adjusted
retrospectively.  The Company adopted the provisions of this guidance
for the quarter ended March 28, 2009.  For the thirteen and
thirty-nine weeks ended September 26, 2009, the adoption of the required
provisions did not have a material impact on the calculation of earnings per
share – basic or earnings per share – diluted.
 
 In April
2009, the FASB issued guidance on the interim disclosures about the fair value
of financial instruments (formerly referred to as “FSP No. FAS 107-1 and APB
28-1, Interim Disclosures
about Fair Value of
Financial Instruments”).This guidance requires disclosure
about fair value of financial instruments for interim reporting periods and
annual financial statements of publicly traded companies.  This guidance is
effective for interim reporting periods ending after June 15, 2009.  The
Company adopted this guidance in the quarter ended June 27,
2009.  Because this guidance applies only to financial statement
disclosures, the adoption did not have a material impact on the Company’s
condensed consolidated financial statements.
 
 In April
2009, the FASB issued guidance on the determination of fair value of certain
assets and liabilities in certain circumstances (formerly referred to as “FSP
No. FAS 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly”).This guidance provides additional direction for estimating fair value
when the volume and level of activity for the asset or liability have
significantly decreased and provides guidance on identifying circumstances that
indicate a transaction is not orderly.  This guidance is effective for
interim reporting periods ending after June 15, 2009.  The Company adopted
this guidance in the quarter ended June 27, 2009.  The adoption did
not have a material impact on the Company’s condensed consolidated financial
statements.
 -10-
 In April
2009, the FASB issued guidance on the accounting for and disclosure of
other-than-temporary impairments (formerly referred to as “FSP No. FAS 115-2 and
FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments”).  This guidance
provides a framework to perform an other-than-temporary impairment analysis, in
compliance with GAAP, which determines whether the holder of an investment in a
debt or equity security, for which changes in fair value are not regularly
recognized in earnings, should recognize a loss in earnings when the investment
is impaired.  Additionally, this guidance amends the other-than-temporary
impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements.  
The other-than-temporary impairment guidance is effective for interim reporting
periods ending after June 15, 2009.  The Company adopted the
other-than-temporary impairment guidance in the quarter ended June 27,
2009.  The adoption did not have a material impact on the Company’s
condensed consolidated financial statements.
 
 In May
2009, the FASB issued guidance on the accounting for and disclosure of
subsequent events (formerly referred to as “Statement No. 165, Subsequent Events, which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued.  In particular, the guidance discusses the
period after the balance sheet date and the circumstances under which management
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements.  The subsequent events
guidance also requires certain disclosures about events or transactions
occurring after the balance sheet date.  The subsequent events
guidance is effective for interim and annual reporting periods ending after
June 15, 2009.  The Company adopted the provisions of the
subsequent events guidance in the second quarter ended June 27,
2009.  The adoption did not have a material impact on the condensed
consolidated financial statements.
 
 In June
2009, the FASB issued guidance on accounting for the transfers of financial
assets (formerly referred to as “Statement No. 166, Accounting for Transfers of Financial Assets - an
amendment of FASB Statement No. 140”), which amends the existing guidance
on transfers of financial assets.   The amendments include: (1)
eliminating the qualifying special-purpose entity concept; (2) a new unit of
account definition that must be met for transfers of portions of financial
assets to be eligible for sale accounting; (3) clarifications and changes to the
derecognition criteria for a transfer to be accounted for as a sale; (4) a
change to the amount of recognized gain or loss on a transfer of financial
assets accounted for as a sale when beneficial interests are received by the
transferor; and (5) extensive new disclosures. This guidance is effective for
new transfers of financial assets occurring on or after January 1,
2010.  The adoption of this guidance is not expected to have a
material impact on the Company’s condensed consolidated financial statements;
however, it could impact future transactions entered into by the
Company.
  In June
2009, the FASB issued guidance on the accounting for variable interest entities
(formerly referred to as “Statement No. 167, Amendments to FASB Interpretation
No. 46(R)”),which amends the consolidation guidance for
variable-interest entities.  The amendments include: (1) the
elimination of the exemption for qualifying special purpose entities; (2) a new
approach for determining who should consolidate a variable-interest entity; and
(3) changes to when it is necessary to reassess who should consolidate a
variable-interest entity.  The Company is currently evaluating the
impact of this standard, which is effective January 1, 2010, on the condensed
consolidated financial statements.
  InJune 2009, the FASB issued
guidance on the Codification of GAAP (formerly referred to as “Statement
No. 168, The FASB
Accounting Standards Codification and the Hierarchy of GAAP, a replacement for FASB
Statement No. 162”), which establishes the Codification as the
single source of authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities.  SEC rules and interpretive releases are
also sources of authoritative GAAP for SEC registrants.  The
Codification modifies the GAAP hierarchy to include only two levels of GAAP:
authoritative and nonauthoritative.  The Codification is effective for
interim and annual periods ending after September 15, 2009.  As
the Codification is not intended to change or alter existing GAAP, it will not
impact the Company’s condensed consolidated financial statements.  The
Company has eliminated historical GAAP references beginning in this Form 10-Q to
reflect the issuance of the Codification.
  In August
2009, the FASB issued Accounting Standards Update (ASU) No. 2009-5, Measuring Liabilities at Fair
Value, which provides additional guidance on how companies should measure
liabilities at fair value.  The guidance clarifies that a quoted price
in an active market for an identical liability must be used for determination of
fair value; however, if such information is not available one of the following
valuation techniques may be used:  (1) quoted price of the identical
liability when traded as an asset; (2) quoted process for similar liabilities
traded as assets; or (3) another valuation technique such as the income approach
or the market approach.  The guidance also states that the fair value
of a liability should not be adjusted to reflect the impact of contractual
restrictions that prevent its transfer.  The fair value measurement
guidance is effective for interim reporting periods ending after August 26,
2009.  The Company adopted the provisions in the quarter ended
September 26, 2009.  The adoption did not have a material impact on
the Company’s condensed consolidated financial
statements.
 -11-
 
 2.      New
Facilities
 
 In May
2007, the Company announced that as part of its comprehensive operational review
of strategic manufacturing alternatives, it entered into an agreement to
relocate its Philadelphia operations to the Philadelphia Navy
Yard.  The bakery lease agreement provides for a 26-year lease term,
with renewal options for two additional 10 year terms, for a 345,500 square foot
bakery, warehouse and distribution center located on approximately 25
acres.  Construction of the facility is substantially complete and the
Company has begun the equipment commissioning process.  The Company
expects the new facility to be fully operational in 2010.  The term of
the bakery lease commenced in October 2009, and the lease provides for no rent
payments in the first year of occupancy. Rental payments increase from $3.5
million in the second year of occupancy to $7.2 million in the final year of the
lease. The Company also entered into a 16-year agreement for $9.5 million in
financing at a fixed rate of 8.54% to be used for leasehold
improvements.  This agreement provides for no payments in the first
year of occupancy and then requires monthly payments totaling $1.2 million
annually over the remainder of the term.  As of September 26, 2009,
the Company has recognized prepaid rent of $6.0 million in “Other Assets”
related to improvements of the leased facility.  The Company will
account for both agreements as an operating lease and will recognize rental
expense associated with this operating lease on a straight-line basis over 26
years.
 
 The
Company also entered into an agreement to relocate its corporate headquarters to
the Philadelphia Navy Yard.  This lease agreement provides for
approximately 36,000 square feet of office space.  Construction of the
office space is complete and during April 2009, the Company relocated its
corporate headquarters to the Philadelphia Navy Yard.  The office
lease term, which commenced in April 2009, will end at the same time as the new
bakery lease.  The office lease provides for no rent payments during
the first six months of occupancy.  Rental payments increase from
approximately $0.9 million after the first six months of occupancy to
approximately $1.5 million in the final year of the lease.  The
Company will recognize rental expense associated with the operating lease on a
straight-line basis over the term of the agreement.
 
 In
connection with these agreements, the Company provided a $1.1 million letter of
credit, which increased to $8.1 million in the beginning of 2009.  The
outstanding amount of the letter of credit will be reduced starting in 2026 and
will be eliminated by the end of the lease term.  As of September 26,
2009, the outstanding letter of credit under this arrangement totaled $8.1
million.
 
 In
connection with these agreements and the related construction of the new
facilities, the Company provided an additional $0.5 million letter of credit,
which increased to $5.6 million in the first quarter of 2009.  The
outstanding amount of the letter of credit will be eliminated in December
2009.  As of September 26, 2009, the outstanding letter of credit
under this arrangement totaled $4.8 million.
 
 In
addition to the facility leases, the Company purchased high-tech, modern baking
equipment.  This equipment is designed to increase product development
flexibility and efficiency, while maintaining existing taste and quality
standards.  The investment for this project, in addition to any costs
associated with the agreements described above, is projected to be approximately
$75.0 million through 2010.  In September 2007, the Company closed on
a multi-bank credit facility and low-interest development loans provided in part
by the Commonwealth of Pennsylvania and the Philadelphia Industrial Development
Corporation (“PIDC”) to finance this investment and refinance the Company’s
existing revolving credit facilities, as well as to provide for financial
flexibility in running the ongoing operations and working capital
needs.
  To date,
the Company has not incurred any material obligations related to one-time
termination benefits, contract termination costs or other associated
costs.
 
 The
Company has evaluated the long-lived assets utilized in its Philadelphia
operations for potential impairment or held-for-sale
classification.  The estimated fair value of the asset groups
continues to exceed the carrying amount of such asset groups, and as such,
neither the assets to be relocated nor the assets to be left in place at the
Philadelphia operations have suffered impairment.  The Company
anticipates that certain long-lived assets utilized in the Philadelphia
operations will not be relocated to the new facilities or sold as a result of
the relocation.  The remaining useful lives of these assets are
consistent with the time remaining until the completion of the relocation of the
Company’s operations.
 -12-
  The Company expects to eliminate
approximately 215 positions in connection with the relocation of its
Philadelphia operations.  While the Company hopes to achieve much of
this result through normal attrition and the reduction of contract labor, it is
probable that the Company will incur obligations related to postemployment
benefits.  During the third quarter of 2009, the Company revised its
estimate of the postemployment costs expected to be incurred in connection with
the relocation of its Philadelphia operation.  The Company had a
reserve of $0.9 million and $1.7 million for estimated future obligations
related to postemployment benefits associated with the relocation of the
Company’s Philadelphia operations as of September 26, 2009 and December 27,
2008, respectively.
 3.      Inventories
 
 Inventories
are classified as follows (in thousands):
   September
      26,
                  2009
                
                
                December 27,
                  2008Finished
      goods
                
                $
                2,863
                
                
                $
                2,275Work in
      progress
                
                
                129
                
                
                
                109Raw materials
      and supplies
                
                
                4,673
                
                
                
                4,806$
                7,665
                
                
                $
                7,190
  The
inventory balance has been reduced by reserves for obsolete and slow-moving
inventories totaling $29 thousand as of September 26, 2009.  At
December 27, 2008, there were no reserves established for obsolete and
slow-moving inventories.
 
 4.      Credit
Facilities
 
 In
September 2007, the Company entered into a 5 year, $100.0 million secured credit
facility with 4 banks (the “Bank Credit Facility”), consisting of a $55.0
million fixed asset line of credit, a $35.0 million working capital revolver and
a $10.0 million low-interest loan from the agent bank with the Commonwealth of
Pennsylvania.  The Bank Credit Facility is secured by a blanket lien
on the Company’s assets and contains various non-financial and financial
covenants, including a fixed charge coverage covenant, a maximum operating
leverage ratio covenant, a minimum liquidity ratio covenant and minimum level of
earnings before interest, taxes, depreciation and amortization (“EBITDA”)
covenant.  Interest rates for the fixed asset line of credit and
working capital revolver are indexed to LIBOR and include a spread above that
index from 125 to 325 basis points based upon the Company’s ratio of debt to
EBITDA.  The fixed asset line of credit and the working capital
revolver include commitment fees from 20 to 50 basis points based upon the
Company’s ratio of debt to EBITDA.  The $10.0 million low-interest
loan bears interest at a fixed rate of 5.5% per annum.  In October
2008, the Company amended its Bank Credit Facility to provide for additional
flexibility and to change certain financial covenants, including the minimum
EBITDA requirement as of December 27, 2008 and the maximum operating leverage
ratio as of September 27, 2008 and December 27, 2008 which was necessary to
eliminate an instance of non-compliance.  As of September 26, 2009 and
December 27, 2008, the outstanding balances under the Bank Credit Facility were
$67.4 million and $45.2 million, respectively.
 
 In
September 2007, the Company entered into a 10 year, $12.0 million secured credit
agreement with the PIDC Local Development Corporation (“PIDC Credit
Facility”).  This credit facility bears interest at a blended fixed
rate of 4.5% per annum, participates in the blanket lien on the Company’s assets
and contains customary representations and warranties as well as customary
affirmative and negative covenants essentially similar to those in the Bank
Credit Facility, as amended in October 2008.  Negative covenants
include, among others, limitations on incurrence of liens and secured
indebtedness by the Company, other than in connection with the Bank Credit
Facility and the MELF Loan 1 and the MELF Loan 2, as defined
below.  As of September 26, 2009 and December 27, 2008, the
outstanding balances under the PIDC Credit Facility were $12.0 million and $3.0
million, respectively.
 
 In
September 2007, the Company entered into a 10 year, $5.0 million Machinery and
Equipment Loan Fund secured loan with the Commonwealth of Pennsylvania (“MELF
Loan 1”).  This loan bears interest at a fixed rate of 5.0% per annum
and contains customary representations and warranties as well as customary
affirmative and negative covenants similar to those in the Bank Credit Facility,
as amended in October 2008.  Negative covenants include, among others,
limitations on incurrence of liens and secured indebtedness by the Company,
other than in connection with the Bank Credit Facility and the PIDC Credit
Facility.  In September 2008, the Company entered into a second 10
year, $5.0 million Machinery and Equipment Loan Fund secured loan with the
Commonwealth of Pennsylvania (“MELF Loan 2”).  The terms and
conditions of MELF Loan 2 are substantially the same as MELF Loan
1.  As of September 26, 2009 and December 27, 2008, the aggregate
outstanding balance under the MELF Loan 1 and MELF Loan 2 was $10.0
million.
 -13-
 As of
September 26, 2009, the Company was in compliance with the various nonfinancial
and financial covenants associated with the Bank Credit Facility, the PIDC
Credit Facility, the MELF Loan 1 and the MELF Loan 2.
 
 In
September 2007, the Company entered into an agreement which governs the shared
collateral positions under the Bank Credit Facility, the PIDC Credit Facility,
the MELF Loan 1 and the MELF Loan 2 (the “Intercreditor Agreement”), and
establishes the priorities and procedures that each lender has in enforcing the
terms and conditions of each of their respective agreements.  The
Intercreditor Agreement permits the group of banks and their agent bank in the
Bank Credit Facility to have the initial responsibility to enforce the terms and
conditions of the various credit agreements, subject to certain specific
limitations, and allows such bank group to negotiate amendments and waivers on
behalf of all lenders, subject to the approval of each lender.
 
 The
Company has used and expects to continue to utilize proceeds from the Bank
Credit Facility, the PIDC Credit Facility, the MELF Loan 1 and the MELF Loan 2
to finance the Company’s move of its corporate headquarters to the Philadelphia
Navy Yard and its move of the Philadelphia manufacturing facility to new
facilities at the Philadelphia Navy Yard, along with working capital
needs.
 
 5.      Derivative
Instruments
 
 In order
to hedge a portion of the Company’s exposure to changes in interest rates on
debt incurred under its Bank Credit Facility, the Company enters into
variable-to-fixed interest rate swap contracts to fix the interest rates on a
portion of its variable interest rate debt.  These contracts are
accounted for as cash flow hedges.  Accordingly, these derivatives are
marked to market and the resulting gains or losses are recorded in other
comprehensive income as an offset to the related hedged asset or
liability.  The actual interest expense incurred, inclusive of the
effect of the hedge in the current period, is recorded in the statements of
operations.
 
 In January
2008, the Company entered into an $8.5 million notional value interest rate swap
contract that increases to $35.0 million by April 2010 with a fixed LIBOR rate
of 3.835% that expires on September 5, 2012.  As of September 26,
2009, the notional value of the swap was $13.5 million.  The LIBOR
rates were subject to an additional credit spread ranging from 125 basis points
to 325 basis points and were equal to 325 basis points as of September 26,
2009.  The cumulative change in the fair market value of the
derivative instrument is reflected as a liability totaling $2.0 million and $1.8
million as of September 26, 2009 and December 27, 2008,
respectively.
 
 In May
2008, the Company entered into an $8.0 million notional value interest rate swap
with a fixed LIBOR rate of 2.97% that expires on May 1, 2011.  The
LIBOR rates were subject to an additional credit spread ranging from 125 basis
points to 325 basis points and were equal to 325 basis points as of September
26, 2009.  The cumulative change in the fair market value of the
derivative instrument is reflected as a liability totaling $0.3 million as of
September 26, 2009 and December 27, 2008.
  As part of
the construction of its new manufacturing facility, the Company entered into
firm commitments to acquire machinery and equipment denominated in a foreign
currency.  In order to hedge the exposure resulting from changes in
foreign currency rates, the Company entered into foreign currency forward
contracts denominated in Australian Dollars (“AUD”).  These contracts
are accounted for as foreign currency fair value hedges.  Accordingly,
the changes in fair value of both the firm commitments and the derivative
instruments are recorded currently in the condensed consolidated statements of
operations, with the corresponding asset and liability recorded on the balance
sheets.
 
 As of
September 26, 2009 and December 27, 2008, the notional principle of outstanding
foreign currency forward contracts designated as hedges was 1.4 million AUD
($1.2 million USD) and 5.3 million AUD ($3.6 million USD),
respectively.
 -14-
 The
Company held foreign currency forward contracts, which were originally entered
into to hedge the risk of foreign currency fluctuations associated with
commitments denominated in AUD; however, during the thirty-nine weeks ended
September 26, 2009 certain of these forward contracts were determined to be no
longer designated as hedging instruments.  All of these contracts have
been settled as of September 26, 2009.
  The
following table provides the location and amounts of gains and losses associated
with the Company’s derivative instruments (in thousands):
  Thirteen Weeks
      Ended
                  
                  
                  Thirty-nine
      Weeks EndedIncome
      Statement
                  
                  September
      26,
                  
                  
                  September
      27,
                  
                  
                  September
      26,
                  
                  
                  September
      27,Location
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Cash Flow HedgesInterest
      Rate SwapsNet
      gain (loss) recognized in accumulated other
                    comprehensive
      income
                  
                  
                  
                  $
                  (383
                  )
                  
                  $
                  (357
                  )
                  
                  $
                  (173
                  )
                  
                  $
                  370Net
      gain (loss) reclassified from accumulated
                    other
      comprehensive income to interest expense
                  
                  Interest
      expense
                  
                  
                  (163
                  )
                  
                  
                  (33
                  )
                  
                  
                  (369
                  )
                  
                  
                  (116
                  )Fair Value HedgesForeign
      currency forward contractsNet
      gain (loss) recognized in other income, net
                  
                  Other
      (income)expense,
      net
                  
                  
                  84
                  
                  
                  
                  (678
                  )
                  
                  
                  687
                  
                  
                  
                  (289
                  )
 Amounts
are reclassified from accumulated other comprehensive income to interest expense
for the interest rate swaps on the scheduled maturity dates defined by the
agreements.
 
 Foreign
currency fair value hedges are entered into against foreign currency
fluctuations of firm commitments.  Amounts recognized in other income
associated with these fair value hedges are fully offset by foreign currency
fluctuations of the firm commitments also recognized as other income,
net.
 
 In
addition to the derivative instruments described above, the Company has entered
into foreign currency forward contracts that are not designated as hedging
activities.  These forward contracts do not have any impact on net
income as the Company has entered into equal and offsetting buy and sell
contracts and changes in fair value are fully offsetting within the other
(income) expense, net line of the condensed consolidated statements of
operations.
 
 Derivative
instruments are reflected in the condensed consolidated balance sheets as
follows (in thousands):
  September
      26,
                    
                    
                    December
      27,Balance
      Sheet Location
                    
                    
                    2009
                    
                    
                    2008Hedging
      derivative instrumentsInterest
      rate swaps
                    
                    Other
      non-current liabilities
                    
                    $
                    
                    (2,262
                    )
                    
                    $
                    (2,089
                    )Foreign
      currency hedges
                    
                    Prepayments
      and other
                    
                    
                    
                    102
                    
                    
                    
                    -Foreign
      currency hedges
                    
                    Other
      current liabilities
                    
                    
                    
                    -
                    
                    
                    
                    (382
                    )Foreign
      currency hedges
                    
                    Other
      non-current liabilities
                    
                    
                    
                    -
                    
                    
                    
                    (203
                    )
  Counterparties
to the foreign currency forward contracts and interest rate swaps are primarily
major banking institutions with credit ratings of investment grade or better and
no collateral is required.  There are no significant risk
concentrations.  The Company believes the risk of incurring losses on
derivative contracts related to credit risk is remote.
 -15-
 6.      Fair
Value Measurements
 
 The
Company discloses certain fair value measurements based on a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as
follows:
 Level
      1.
                    
                    Observable
      inputs such as quoted prices in active markets for identical assets or
      liabilities;Level
      2.
                    
                    Inputs,
      other than quoted prices included within Level 1, that are observable
      either directly or indirectly; andLevel
      3.
                    
                    Unobservable
      inputs in which there is little or no market data, which require the
      reporting entity to develop its own
assumptions.
 
 The
following table presents assets / (liabilities) measured at fair value on a
recurring basis at September 26, 2009 (in thousands):
 
 Fair
      Value Measurement UsingDescription
                    
                    Balance
      as of
                      September
      26, 2009
                    
                    
                    Quoted
      Prices in
                      Active
      Markets
                      for
      Identical
                      Assets
      (Level 1)
                    
                    
                    Significant
                      Other
                      Observable
                      Inputs
                      (Level
      2)
                    
                    
                    Significant
                      Unobservable
                      Inputs
      (Level 3)Financial
      instruments owned:Interest
      rate swaps
                    
                    $
                    (2,262
                    )
                    
                    $
                    —
                    
                    
                    $
                    (2,262
                    )
                    
                    $
                    —Foreign
      currency hedges
                    
                    
                    102
                    
                    
                    
                    —
                    
                    
                    
                    102
                    
                    
                    
                    —Total
      financial instruments owned
                    
                    $
                    (2,160
                    )
                    
                    $
                    —
                    
                    
                    $
                    (2,160
                    )
                    
                    $
                    —
 
 The
following table presents assets / (liabilities) measured at fair value on a
recurring basis at December 27, 2008 (in thousands):
 
 Fair
      Value Measurement UsingDescription
                    
                    Balance
      as of
                      December
      27, 2008
                    
                    
                    Quoted
      Prices
                      in
      Active Markets
                      for
      Identical Assets
                      (Level
      1)
                    
                    
                    Significant
                      Other
      Observable
                      Inputs
                      (Level
      2)
                    
                    
                    Significant
                      Unobservable
                      Inputs
                      (Level
      3)Financial
      instruments owned:Interest
      rate swaps
                    
                    $
                    (2,089
                    )
                    
                    $
                    —
                    
                    
                    $
                    (2,089
                    )
                    
                    $
                    —Foreign
      currency hedges
                    
                    
                    (585
                    )
                    
                    
                    —
                    
                    
                    
                    (585
                    )
                    
                    
                    —Total
      financial instruments owned
                    
                    $
                    (2,674
                    )
                    
                    $
                    —
                    
                    
                    $
                    (2,674
                    )
                    
                    $
                    —
 
 As of
September 26, 2009 and December 27, 2008, the carrying values of cash and cash
equivalents, accounts receivable, accounts payable and other current liabilities
are representative of fair value due to the short-term nature of the
instruments.  The Company’s carrying value of long-term debt
approximates fair value.
 
 7.      Defined
Benefit Retirement Plans
 
 The
Company maintains a partially funded noncontributory Defined Benefit Retirement
Plan (the “DB Plan”) providing retirement benefits.  Benefits under
this DB Plan are generally based on the employees’ years of service and
compensation during the years preceding retirement.  The Company
amended the DB Plan to freeze benefit accruals effective March 26,
2005.   The Company maintains a DB Supplemental Executive
Retirement Plan (“SERP”) for key employees designated by the Board of Directors
(the “Board”), however, there are no current employees earning benefits under
this plan.  See Note 8 for more information.  The Company
also maintains a frozen unfunded Retirement Plan for Directors (the “DB Director
Plan”).  The benefit amount is the annual cash retainer in the year of
retirement, but not less than $16 thousand for Directors serving on December 31,
1993.
 
 Effective
February 15, 2007, benefit accruals under the DB Director Plan were frozen for
current directors and future directors were precluded from participating in the
plan.  Participants are credited for service under the DB Director
Plan after February 15, 2007 solely for vesting purposes.  On February
15, 2007, the Board approved a Deferred Stock Unit Plan (the “DSU
Plan”).  The DSU Plan provides that for each fiscal quarter, the
Company will credit deferred stock units (“DSUs”) to the director’s account
equivalent in value to $4 thousand on the last day of such quarter, provided
that he or she is a director on the last day of such
quarter.  Directors will be entitled to be paid in shares upon
termination of Board service provided the director has at least five years of
continuous service on the Board.  The shares may be paid out in a lump
sum or at the director’s election, over a period of five years.
 -16-
 The
components of the DB Plan, DB SERP, and DB Director Plan’s costs are summarized
as follows (in thousands):
 
 Thirteen Weeks
      Ended
                          
                          
                          Thirty-nine
      Weeks EndedSeptember 26,
                            2009
                          
                          
                          September 27,
                            2008
                          
                          
                          September 26,
                            2009
                          
                          
                          September 27,
                            2008Service
      cost
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Interest
      cost
                          
                          
                          1,254
                          
                          
                          
                          1,252
                          
                          
                          
                          3,773
                          
                          
                          
                          3,757Expected
      return on plan assets
                          
                          
                          (955
                          )
                          
                          
                          (1,268
                          )
                          
                          
                          (2,866
                          )
                          
                          
                          (3,804
                          )Amortization
      of prior service cost
                          
                          
                          1
                          
                          
                          
                          (4
                          )
                          
                          
                          (7
                          )
                          
                          
                          (12
                          )Actuarial
      loss recognition
                          
                          
                          9
                          
                          
                          
                          16
                          
                          
                          
                          35
                          
                          
                          
                          48Net
      DB pension amount charged / (credited) to income
                          
                          $
                          309
                          
                          
                          $
                          (4
                          )
                          
                          $
                          935
                          
                          
                          $
                          (11
                          )
  The
Company made cash contributions totaling $0.6 million and $1.8 million to the
frozen DB Plan for the thirteen and thirty-nine weeks ended September 26, 2009,
respectively, in accordance with the Pension Protection Act of
2006.  During 2009, the Company will make aggregate minimum required
cash contributions to the DB Plan in four quarterly installments totaling $2.4
million.
 8.      Defined
Contribution Retirement Plans
 
 The
Company maintains the Tasty Baking Company 401(k) and Company Funded Retirement
Plan (the “DC Retirement Plan”) which has two separate benefits.  The
first benefit in the Retirement Plan is a funded Defined Contribution Retirement
Plan (the “DC Plan”), which is offered in lieu of the benefits previously
provided in the now frozen DB Plan. Under the DC Plan, the Company makes weekly
cash contributions into individual accounts for all eligible
employees.  These contributions are based on employees’ point values
which are the sum of age and years of service as of January 1 each
year.  All employees receive contributions that range from 2.0% to
5.0% of covered compensation relative to their point
totals.  Employees at March 27, 2005, who had 20 years of service or
10 years of service and 60 points, received an additional “grandfathered”
contribution between 1.5% and 3.5% of salary.  The “grandfathered”
contribution percentage is paid weekly with the regular contribution until those
covered employees retire or separate from the Company.  These
“grandfathered” contributions are being made to compensate older employees for
the shorter earnings period that their accounts will have to appreciate in value
relative to their normal retirement dates.
 
 The second
benefit in the DC Retirement Plan is a 401(k) Plan.  Under the 401(k)
Plan, all participants receive a discretionary Company match of their elective
deferrals.  Historically, the Company matching contribution has been
50% of their elective deferrals that do not exceed 4.0% of their covered
compensation as defined in the 401(k) Plan.  As of June 27, 2009, the
Company suspended the discretionary matching contribution under the 401(k) Plan
for the remainder of fiscal 2009 for all employees who participate in the
program.
 
 The
Company also maintains an unfunded defined contribution Supplemental Employee
Retirement Plan (“DC SERP”) for one eligible active employee.
  The
components of the defined contribution retirement plans included in the
Company’s condensed consolidated statements of operations are summarized as
follows (in thousands):
  Thirteen
      Weeks Ended
                              
                              
                              Thirty-nine
      Weeks EndedSeptember
      26,
                                2009
                              
                              
                              September
      27,
                                2008
                              
                              
                              September
      26,
                                2009
                              
                              
                              September
      27,
                                2008DC
      plan
                              
                              $
                              446
                              
                              
                              $
                              419
                              
                              
                              $
                              1,320
                              
                              
                              $
                              1,223DC
      SERP
                              
                              
                              72
                              
                              
                              
                              97
                              
                              
                              
                              216
                              
                              
                              
                              290401(k)
      matching contribution
                              
                              
                              -
                              
                              
                              
                              164
                              
                              
                              
                              351
                              
                              
                              
                              499Net
      defined contribution retirement plan amountcharged
      to income
                              
                              $
                              518
                              
                              
                              $
                              680
                              
                              
                              $
                              1,887
                              
                              
                              $
                              2,012
 -17-
 9.      Postretirement
Benefits Other than Pensions
 In
addition to providing pension benefits, the Company has historically provided
certain unfunded health care and life insurance programs for substantially all
retired employees, or Other Postretirement Benefits (“OPEB”).  These
benefits have been provided through contracts with insurance companies and
health service providers.
 
 With the
implementation of Medicare Part D in January 2006, the Company stopped providing
medical benefits for most of its post-65 retirees and began requiring incumbent
retirees to pay age-based rates for life insurance benefits in excess of $20
thousand.  Since January 2006, the Company provided subsidized medical
benefits for its retirees and their dependents who had not yet reached age
65.  In December 2008, the Company made the decision to terminate its
retiree medical benefit plan, which offered medical insurance to pre-65 retirees
at a subsidized rate.  The decision to terminate the plan was made
prior to December 27, 2008 and the Company set the benefits’ cessation date as
December 1, 2009.
 
 Life
insurance for individuals retiring before January 1, 2006 was capped at $20
thousand of coverage.  Incumbent retirees who purchase coverage in
excess of $20 thousand and all new retirees after January 1, 2006 pay age based
rates for their life insurance benefit for which the Company incurs no
liability.  In June 2009, the Company made a decision to cease
providing life insurance benefits for its retirees and terminated the
plan.  The associated plan amendment and curtailment resulted in the
Company recording approximately $3.7 million in income in the second quarter of
2009.  Approximately $2.2 million of the $3.7 million was recorded as
a reduction in cost of sales, with the remainder of approximately $1.5 million
recorded as an offset to selling, general and administrative
expenses.
 
 The
components of net postretirement benefit are summarized as follows (in
thousands):
 Thirteen
      Weeks Ended
                              
                              
                              Thirty-nine
      Weeks EndedSeptember
      26, 2009
                              
                              
                              September
      27,
                                2008
                              
                              
                              September
      26,
                                2009
                              
                              
                              September
      27,
                                2008Service
      cost
                              
                              $
                              -
                              
                              
                              $
                              91
                              
                              
                              $
                              -
                              
                              
                              $
                              272Interest
      cost
                              
                              
                              1
                              
                              
                              
                              115
                              
                              
                              
                              86
                              
                              
                              
                              347Amortization
      of unrecognized prior service cost (benefit)
                              
                              
                              -
                              
                              
                              
                              (458
                              )
                              
                              
                              (398
                              )
                              
                              
                              (1,373
                              )Amortization
      of unrecognized gain
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Curtailment
      benefit
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (3,717
                              )
                              
                              
                              -Total
      OPEB net postretirement benefit
                              
                              $
                              1
                              
                              
                              $
                              (252
                              )
                              
                              $
                              (4,029
                              )
                              
                              $
                              (754
                              )




Payments
made in connection with the OPEB plans totaled $0.3 million and $0.5 million,
for the thirty-nine weeks ended September 26, 2009 and September 27, 2008,
respectively.
 10.      Stock
Compensation
 The
Company maintains a 2006 Long-Term Incentive Plan (the “2006
Plan”).  The aggregate number of shares available for grant under the
2006 Plan is 121,000 shares of the Company’s common stock as of September 26,
2009.
 
 The 2006
Plan authorizes the Compensation Committee (the “Committee”) of the Board to
grant awards of stock options, stock appreciation rights, unrestricted stock,
restricted stock (“RSA”) (including performance restricted stock) and
performance shares to employees, directors and consultants or advisors of the
Company.  The option price is determined by the Committee and, in the
case of incentive stock options, will be no less than the fair market value of
the shares on the date of grant.  Options lapse at the earlier of the
expiration of the option term specified by the Committee (not more than ten
years in the case of incentive stock options) or three months following the date
on which employment with the Company terminates.
 
 The
Company also maintains a 2003 Long-Term Incentive Plan (the “2003
Plan”).  The aggregate number of shares available for grant under the
2003 Plan is 32,820 as of September 26, 2009.  The terms and
conditions of the 2003 plan are generally the same as the 2006
Plan.  A notable difference is that the 2003 Plan can only award
shares to employees and directors of the Company.  The Company also
has options and RSAs outstanding under the 1994 and the 1997 Long-Term Incentive
Plans.
 
 Notwithstanding
the vesting and termination provisions described above, the Company entered into
Change of Control Agreements and Employment Agreements with certain executive
officers, whereby upon a change of control, the shares granted as RSAs vest and
any restrictions on outstanding stock options lapse
immediately.  Additionally, under the terms of those agreements,
shares granted as RSAs may vest after termination of employment in certain
circumstances.
 -18-





Stock
options as of September 26, 2009, are summarized as follows:


Shares
      (000’s)
              
              
              Weighted
      Average
                Exercise
      Price
              
              
              Weighted
      Average
                Remaining
      Contractual Term
              
              
              Aggregate
      Intrinsic
                Value
      (000s)Outstanding
      at December 27, 2008
              
              
              322
              
              
              $
              10.38Granted
              
              
              -
              
              
              
              -Forfeited
              
              
              (5
              )
              
              
              11.50Exercised
              
              
              -
              
              
              
              -Outstanding
      at March 28, 2009
              
              
              317
              
              
              $
              10.36
              
              
              
              4.12
              
              
              $
              765Granted
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Outstanding
      at June 27, 2009
              
              
              317
              
              
              $
              10.36
              
              
              
              3.88
              
              
              $
              765Granted
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Outstanding
      at September 26, 2009
              
              
              317
              
              
              $
              10.36
              
              
              
              3.65
              
              
              $
              764Options
      exercisable at March 28, 2009
              
              
              317
              
              
              $
              10.36
              
              
              
              4.12
              
              
              $
              765Options
      exercisable at June 27, 2009
              
              
              317
              
              
              $
              10.36
              
              
              
              3.88
              
              
              $
              765Options
      exercisable at September 26, 2009
              
              
              317
              
              
              $
              10.36
              
              
              
              3.65
              
              
              $
              764
 As of
September 26, 2009, there was no unrecognized compensation related to nonvested
stock options, as all options were fully vested.  For the thirteen
weeks ended September 26, 2009, there were no options granted and there was no
cash received from option exercises.  There was no compensation
expense recognized in the condensed consolidated statements of operations for
stock options in the thirteen and thirty-nine weeks ended September 26, 2009 or
September 27, 2008.
 
 The
Company recognizes expense for restricted stock using the straight-line method
over the requisite service period.  A summary of the restricted stock
as of September 26, 2009, is presented below:
 Shares
      (000’s)
                
                
                Weighted
      Average Fair ValueNonvested
      at December 27, 2008
                
                
                417
                
                
                $
                6.07Granted
                
                
                100
                
                
                
                4.08Forfeited
                
                
                (1
                )
                
                
                7.16Exercised
                
                
                -
                
                
                
                -Nonvested
      at September 26, 2009
                
                
                516
                
                
                $
                5.68




As of
September 26, 2009, there was $1.5 million of unrecognized compensation cost
related to nonvested restricted stock which is expected to be recognized over a
weighted average period of approximately 2.17 years.
 
 11.      Income
Taxes
 
 The
Company’s effective tax rate was 41.5% and 39.7% for the thirteen weeks ended
September 26, 2009 and September 27, 2008, respectively, and 28.7% and 35.9% for
the thirty-nine weeks ended September 26, 2009 and September 27, 2008,
respectively. The Company’s effective tax rate differs from the composite
federal and state statutory tax rate due to certain expenses which are not
deductible for income tax purposes and non-recurring discrete items.
 Non-deductible expense items and discrete items tend to increase the
effective tax rate when pre-tax income is reported and tend to decrease the
effective tax rate when a pre-tax loss is reported.  During the thirty-nine
weeks ended September 26, 2009, the Company favorably settled a state tax matter
that resulted in discrete tax benefits of approximately $454 thousand, which
reduced the Company’s effective tax rate for the periods
presented.  For the thirty-nine weeks ended September 27, 2008, the
Company recorded $0.1 million in non-recurring discrete expense items related to
the write-off of charitable contribution carryforwards.
 -19-




12.      Accumulated
Other Comprehensive Income (Loss)
 Total
comprehensive income (loss), net of tax, includes the following (in
thousands):
  Thirteen
      Weeks Ended
                
                
                Thirty-nine
      Weeks EndedSeptember
      26,
                  2009
                
                
                September
      27,
                  2008
                
                
                September
      26,
                  2009
                
                
                September
      27,
                  2008Net
      income (loss)
                
                $
                (531
                )
                
                $
                (1,352
                )
                
                $
                1,743
                
                
                $
                (2,236
                )Other
      comprehensive income (loss)Pension
      plan
                
                
                74
                
                
                
                7
                
                
                
                (420
                )
                
                
                (43
                )Other
      postretirement benefits
                
                
                -
                
                
                
                (256
                )
                
                
                (1,001
                )
                
                
                (805
                )Change
      in unrealized gainon
      derivative instruments
                
                
                (230
                )
                
                
                (214
                )
                
                
                (85
                )
                
                
                222Total
      other comprehensive income (loss)
                
                
                (156
                )
                
                
                (463
                )
                
                
                (1,506
                )
                
                
                (626
                )Total
      comprehensive income (loss)
                
                $
                (687
                )
                
                $
                (1,815
                )
                
                $
                237
                
                
                $
                (2,862
                )




The
following table summarizes the components of accumulated other comprehensive
(loss) net of tax (in thousands):
 September 26,
                  2009
                
                
                December
      27,
                  2008Pension
      plan
                
                $
                (5,748
                )
                
                $
                (5,327
                )Other
      postretirement benefits
                
                
                -
                
                
                
                1,001Unrealized
      (loss) on derivative instruments
                
                
                (1,357
                )
                
                
                (1,273
                )Total
      accumulated other comprehensive (loss)
                
                $
                (7,105
                )
                
                $
                (5,599
                )




13.     
Subsequent Events
 
 The
Company has evaluated any potential subsequent events through November 2, 2009,
which coincides with the date the financial statements were filed with the
Securities and Exchange Commission.
  On October
1, 2009, the term of the lease commenced for the leased bakery facilities at the
Philadelphia Navy Yard.  As discussed in Note 2, the bakery lease
agreement provides for a 26-year lease term, with renewal options for two
additional 10 year terms, for a 345,500 square foot bakery, warehouse and
distribution center located on approximately 25 acres.  The lease
provides for no rent payments in the first year of occupancy.  Rental
payments increase from $3.5 million in the second year of occupancy to $7.2
million in the final year of the lease.  The Company also entered into
a 16-year agreement for $9.5 million in financing at a fixed rate of 8.54% to be
used for leasehold improvements.  This agreement provides for no
payments in the first year of occupancy and then requires monthly
payments totaling $1.2 million annually over the remainder of the
term.  The Company will recognize rental expense associated with this
operating lease on a straight-line basis over 26 years.  The Company
expects the new facility to be fully operational in 2010.
 -20-





Item 2.   Management’s Discussion and
Analysis of Financial Condition and Results of Operation


All
disclosures are pre-tax, unless otherwise noted.





Results of
Operations





For
the Thirteen Weeks ended September 26, 2009 and September 27, 2008





Overview


The
Company reported a net loss of $0.5 million or $0.07 per fully-diluted share, in
the third quarter of 2009 compared to a net loss of $1.4 million, or $0.17 per
fully-diluted share, in the third quarter of 2008.  The net loss in
the third quarter of 2009 and 2008 included $1.3 million of accelerated
depreciation, pre-tax, resulting from the change in the estimated useful lives
of certain assets at the Company’s Philadelphia operations in the second quarter
of fiscal 2007.  The change in estimated useful lives resulted from
the Company’s plans to move from its present facilities.  Results from
the third quarter of 2009 also included $0.7 million, pre-tax, of income
resulting from a reduction in the Company’s estimate of the postemployment costs
expected to be incurred in connection with the relocation of its Philadelphia
operations.





Sales


Gross
sales increased 7.1% in the third quarter of 2009 on a volume increase of 2.3%
compared to the same period in the prior year.  Net sales in the third
quarter of 2009 increased 1.8% versus the comparable period in 2008 driven by a
3.1% increase in Route net sales while Non-Route net sales declined 2.2%
compared to the same period a year ago.  Route net sales benefited from
increased sales volumes, particularly for the Company’s Family Pack products,
and the net benefits of higher selling prices.  These increases,
however, were negatively impacted by increased product return costs as compared
to the prior year.  The decline in Non-Route net sales during the
third quarter of 2009 resulted primarily from lower sales within the vending
channel.





Cost
of Sales


Cost of
sales, excluding depreciation, for the third quarter of 2009 increased 1.1% or
$0.3 million, compared to year ago, on a unit volume increase of 2.3%.  The
increase in cost of sales was driven by the impact of higher sales volume,
combined with a $0.5 million increase in fixed manufacturing expenses, primarily
resulting from higher employee related costs, including pension and accrued
incentive compensation expense.  These increases were partially offset
by a $0.7 million decline in costs for key ingredients and packaging as compared
to the third quarter of the prior year.





Depreciation


Depreciation
expense remained relatively constant at $3.5 million for the third quarters of
fiscal 2009 and 2008.  Included in depreciation expense for both
periods is approximately $1.3 million of depreciation related to the change in
the useful lives of certain assets at the Company’s Philadelphia operations
which will not be relocated to the new facility.





Gross
Profit


Gross
profit increased $0.5 million or 4.3% in the third quarter of 2009 as compared
to the third quarter of 2008.  This improvement was driven by the
reduction in key ingredient and packaging costs as well as by the benefit of
higher sales volumes, which were partially offset by the increase in fixed
manufacturing expenses as compared to the third quarter of the prior
year.





Selling,
General and Administrative Expenses


Selling,
general and administrative expense in the third quarter of 2009 increased $1.3
million versus the comparable period in 2008.  This increase was
attributable to $0.9 million in higher employee related costs, $0.3 million in
non-cash rental expense associated with the new corporate office space at the
Philadelphia Navy Yard, and an increase in marketing costs compared to the third
quarter of 2008.  The increase in employee related costs primarily
resulted from increases in accrued incentive compensation, equity based
compensation and pension related expenses.  Partially offsetting these
increases were reduced transportation costs driven by favorable shipping rate
changes.





Interest
Expense


Interest
expense increased by $0.2 million to $0.7 million for the thirteen weeks ended
September 26, 2009 as compared to year ago.  The increase is primarily
due to increased borrowings partially offset by lower interest
rates.  The Company is exposed to market risk relative to its interest
expense as certain of its notes payable and long-term debt have floating
interest rates that vary with the conditions of the credit market.


-21-





Other
(Income) Expense, Net


Other
income, net, for the thirteen weeks ended September 26, 2009 totaled $0.9
million compared to other expense, net, of $1.5 million for the thirteen weeks
ended September 27, 2008.  This change is primarily due to the
revision of the estimate for postemployment costs associated with the relocation
of the Company’s Philadelphia operations.  During the third quarter of
fiscal 2009 the estimate was revised from $1.7 million to $0.9
million.





Taxes


The
effective income tax rate for state and federal taxes was 41.5% and 39.7% for
the thirteen weeks ended September 26, 2009 and September 27, 2008,
respectively.  For the third quarter of 2008, the Company recorded
$0.1 million, in non-recurring discrete income items related to charitable
contribution carryforwards.





For
the Thirty-nine Weeks ended September 26, 2009 and September 27,
2008





Overview


Net
income, for the thirty-nine weeks ended September 26, 2009 was $1.7 million or
$0.21 per fully-diluted share compared to a net loss of $2.2 million or $0.28
per fully-diluted share for the comparable period in 2008.  Net income
for the thirty-nine weeks ended September 26, 2009 included the impact of the
Company’s decision to terminate its postretirement life insurance plan in the
second quarter of 2009, which resulted in approximately $3.7 million of income,
pre-tax.  During the third quarter of 2009, the Company revised its
estimate of the postemployment costs expected to be incurred in connection with
the relocation of its Philadelphia operations and recognized a benefit of
approximately $0.7 million, pre-tax, in other (income) expense, net.  In
addition, net income for 2009 and 2008 included $3.9 million of accelerated
depreciation, pre-tax, resulting from the change in the estimated useful lives
of certain assets at the Company’s Philadelphia operations in the third quarter
of fiscal 2007.





Sales


Gross
sales increased 9.0% in the thirty-nine weeks ended September 26, 2009 compared
to the same period in 2008 on a volume increase of 2.6%.  Net sales in the
first thirty-nine weeks of 2009 increased 5.0% compared to the prior year
period.  This growth was driven by a 5.9% increase in Route net sales,
which benefited from volume growth in the Company’s Family Pack and Single Serve
product categories as well as increased net selling prices versus the same
period a year ago.  Non-Route net sales grew 2.0% in the thirty-nine weeks
ended September 26, 2009 compared to the same period in the prior year driven
primarily by increased sales volume to direct retailers as well as the impact
from higher selling prices.





Cost
of Sales


Cost of
sales for the thirty-nine weeks ended September 26, 2009 declined 0.4% or $0.3
million on a volume increase of 2.6% compared to the same period of 2008. 
This decline in the cost of sales was driven by approximately $2.2 million in
benefit recorded in connection with the Company’s termination of its
postretirement life insurance plan in the second quarter of 2009 as well as a
$1.4 million decline in costs for key ingredients and packaging for the
thirty-nine weeks ended September 26, 2009 as compared to the prior year
period.  These benefits were largely offset by the impact of higher
sales volumes in addition to an increase in fixed manufacturing expenses as
compared to the prior year period resulting primarily from employee related
costs, including pension and accrued incentive compensation
expense.





During the
second quarter of 2009, the Company terminated its postretirement life insurance
plan.  As a result of this plan termination, the Company recorded
approximately $3.7 million in income in the second quarter of 2009.
Approximately $2.2 million or 60% of this benefit was recorded in cost of sales,
with the remainder recorded as a component of selling, general and
administrative expense.





Depreciation


Depreciation
expense increased approximately $0.5 million to $10.0 million during the
thirty-nine weeks of fiscal 2009 compared to the thirty-nine weeks of fiscal
2008.  Included in depreciation expense for the first three quarters
of fiscal 2009 and 2008 is approximately $3.9 million of accelerated
depreciation related to the change in the useful lives of certain assets at the
Company’s Philadelphia operations which will not be relocated to the new
facility.





Gross
Profit


Gross
profit increased $6.3 million or 18.5% during the first thirty-nine weeks of
2009 compared to the same period in 2008.  Approximately $4.9 million of
improvement was driven by increased sales volumes and higher net selling prices,
while $2.2 million of income resulted from the benefit caused by the termination
of the Company’s postretirement life insurance plan in the second quarter of
2009.  In addition, approximately $1.4 million of the gross profit
increase was attributable to lower costs for key ingredients and
packaging.  Higher fixed manufacturing costs, primarily pension and
accrued incentive compensation expense partially offset these
improvements.


-22-





Selling,
General and Administrative Expenses


Selling,
general and administrative expense for the thirty-nine weeks ended September 26,
2009 increased 6.8% or $2.4 million as compared to the same period in the prior
year.  The increase was primarily related to approximately $2.7 million in
higher employee related costs, $0.6 million in non-cash rental expense
associated with the new corporate office space at the Philadelphia Navy Yard and
a $0.3 million increase in bad debt expense.  The $2.7 million change in
employee related costs resulted from increases in accrued incentive
compensation, equity based compensation and pension related
expenses.  These increases were partially offset by a benefit of
approximately $1.5 million related to the termination of the Company’s
postretirement life insurance plan in the second quarter of 2009 as well as
lower transportation costs for the thirty-nine weeks ended September 26, 2009 as
compared to the prior year period.





Interest
Expense


Interest
expense increased by $0.4 million to $1.9 million for the thirty-nine weeks
ended September 26, 2009 from $1.5 million for the comparable period in 2008,
primarily due to increased interest expense associated with borrowings related
to expenditures for the Company’s new manufacturing facility which were
partially offset by lower interest rates.   The Company is
exposed to market risk relative to its interest expense as certain of its notes
payable and long-term debt have floating interest rates that vary with the
conditions of the credit market.





Other
(Income) Expense, Net


Other
income, net, for the thirty-nine weeks ended September 26, 2009 totaled $1.3
million compared to other expense, net of $1.1 million for the thirty-nine weeks
ended September 27, 2008.  This change is primarily due to the
revision of the estimate for postemployment costs associated with the relocation
of the Company’s Philadelphia operation.  During the third quarter of
fiscal 2009 the estimate was revised from $1.7 million to $0.9
million.





Taxes


The
effective income tax rate was 28.7% and 35.9% for the thirty-nine weeks ended
September 26, 2009 and September 27, 2008, respectively.  During the
thirty-nine weeks ended September 26, 2009, the Company favorably settled a
state tax matter that resulted in discrete tax benefits of approximately $454
thousand which served to reduce the Company’s effective income tax rate from
47.2% to 28.7%.  For the thirty-nine weeks ended September 27, 2008,
the Company recorded $0.1 million in non-recurring discrete expense items
related to the write-off of charitable contribution carryforwards.





Liquidity
and Capital Resources





Current
assets as of September 26, 2009 were $34.8 million compared to $34.7 million as
of December 27, 2008 and current liabilities as of September 26, 2009 were $26.3
million compared to $23.7 million as of December 27, 2008.   The
$2.6 million increase in current liabilities was primarily due to the
reclassification of the restructuring reserve related to postemployment benefits
associated with the relocation of the Company’s Philadelphia operations,
totaling $0.9 million from non-current liabilities due to the expected timing of
payments.  In addition, current liabilities increased primarily as a
result of a $1.1 million increase in accrued employee related costs and an
increase in accounts payable of $1.5 million resulting primarily from
obligations related to the construction of the Company’s new manufacturing and
distribution facility.





During the
fourth quarter of 2009, the Company expects to make payments of $0.5 million on
its long-term debt incurred in connection with the Company’s new manufacturing
and distribution facility and capital lease obligations related to computer and
handheld equipment.  During the thirty-nine weeks ended September 26,
2009, the Company made payments on long-term debt and capital lease obligations
of approximately $1.4 million.  In addition, during fiscal 2009 the
Company is required, under the Pension Protection Act of 2006, to make $2.4
million in quarterly cash contributions of $0.6 million each to the DB
Plan.  The Company has made cash contributions totaling $1.8 million
to the frozen DB Plan during the thirty-nine weeks ended September 26,
2009.





In May
2007, the Company announced that as part of its comprehensive operational review
of strategic manufacturing alternatives, it entered into an agreement to
relocate its Philadelphia operations to the Philadelphia Navy
Yard.  The bakery lease agreement provides for a 26-year lease term,
with renewal options for two additional 10 year terms, for a 345,500 square foot
bakery, warehouse and distribution center located on approximately 25
acres.  Construction of the facility is substantially complete and the
Company has begun the equipment commissioning process.  The Company
expects the new facility to be fully operational in 2010.  The term of
the bakery lease commenced in October 2009, and the lease provides for no rent
payments in the first year of occupancy. Rental payments increase from $3.5
million in the second year of occupancy to $7.2 million in the final year of the
lease. The Company also entered into a 16-year agreement for $9.5 million in
financing at a fixed rate of 8.54% to be used for leasehold
improvements.  This agreement provides for no payments in the first
year of occupancy and then requires monthly payments totaling $1.2 million
annually over the remainder of the term.  As of September 26, 2009,
the Company has recognized prepaid rent of $6.0 million in “Other Assets”
related to improvements of the leased facility.  The Company will
account for both agreements as an operating lease and will recognize rental
expense associated with this operating lease on a straight-line basis over 26
years.


-23-





The
Company also entered into an agreement to relocate its corporate headquarters to
the Philadelphia Navy Yard.  This lease agreement provides for
approximately 36,000 square feet of office space.  Construction of the
office space is complete and during April 2009, the Company relocated its
corporate headquarters to the Philadelphia Navy Yard.  The lease,
which commenced in April 2009, will end at the same time as the new bakery
lease.  The lease provides for no rent payments in the first six
months of occupancy.  Rental payments increase from approximately $0.9
million after the first six months of occupancy to approximately $1.5 million in
the final year of the lease.  The Company will recognize rental
expense associated with the agreement on a straight-line basis over the term of
the agreement.





In
connection with these agreements, the Company provided a $1.1 million letter of
credit, which increased to $8.1 million in the beginning of 2009.  The
outstanding amount of the letter of credit will be reduced starting in 2026 and
will be eliminated by the end of the lease term.  As of September 26,
2009, the outstanding letter of credit under this arrangement totaled $8.1
million.





In
connection with these agreements and the related construction of the new
facilities, the Company provided an additional $0.5 million letter of credit,
which increased to $5.6 million in the first quarter of 2009.  The
outstanding amount of the letter of credit will be eliminated in December
2009.  As of September 26, 2009, the outstanding letter of credit
under this arrangement totaled $4.8 million.





In
addition to the facility leases, the Company purchased high-tech, modern baking
equipment.  This equipment is designed to increase product development
flexibility and efficiency, while maintaining existing taste and quality
standards.  The investment for this project, in addition to any costs
associated with the agreements described above, is projected to be approximately
$75.0 million through 2010.  In September 2007, the Company closed on
a multi-bank credit facility and low-interest development loans provided in part
by the Commonwealth of Pennsylvania and the Philadelphia Industrial Development
Corporation to finance this investment and refinance the Company’s existing
revolving credit facilities, as well as to provide for financial flexibility in
running the ongoing operations and working capital needs.





Cash
and Cash Equivalents





Historically,
the Company has been able to generate sufficient amounts of cash from
operations.  Bank borrowings are used to supplement cash flow from
operations during periods of cyclical shortages.  The Company
maintains a Bank Credit Facility, a PIDC Credit Facility, a MELF Loan 1 and a
MELF Loan 2, as defined below, and utilizes certain capital and operating
leases.





Cash
overdrafts are recorded within current liabilities.  Cash flows
associated with cash overdrafts are classified as financing
activities.





In
September 2007, the Company entered into a 5 year, $100.0 million secured credit
facility with 4 banks (the “Bank Credit Facility”), consisting of a $55.0
million fixed asset line of credit, a $35.0 million working capital revolver and
a $10.0 million low-interest loan from the agent bank with the Commonwealth of
Pennsylvania.  The Bank Credit Facility is secured by a blanket lien
on the Company’s assets and contains various non-financial and financial
covenants, including a fixed charge coverage covenant, a maximum operating
leverage ratio covenant, a minimum liquidity ratio covenant and minimum level of
earnings before interest, taxes, depreciation and amortization (“EBITDA”)
covenant.  Interest rates for the fixed asset line of credit and
working capital revolver are indexed to LIBOR and include a spread above that
index from 125 to 325 basis points based upon the Company’s ratio of debt to
EBITDA.  The fixed asset line of credit and the working capital
revolver include commitment fees from 20 to 50 basis points based upon the
Company’s ratio of debt to EBITDA.  The $10.0 million low-interest
loan bears interest at a fixed rate of 5.5% per annum.  In October
2008, the Company amended its Bank Credit Facility to provide for additional
flexibility and to change certain financial covenants, including the minimum
EBITDA requirement as of December 27, 2008 and the maximum operating leverage
ratio as of September 27, 2008 and December 27, 2008 which was necessary to
eliminate an instance of non-compliance.


-24-





In
September 2007, the Company entered into a 10 year, $12.0 million secured credit
agreement with the PIDC Local Development Corporation (“PIDC Credit
Facility”).  This credit facility bears interest at a blended fixed
rate of 4.5% per annum, participates in the blanket lien on the Company’s assets
and contains customary representations and warranties as well as customary
affirmative and negative covenants essentially similar to those in the Bank
Credit Facility, as amended in October 2008.  Negative covenants
include, among others, limitations on incurrence of liens and secured
indebtedness by the Company and/or its subsidiaries, other than in connection
with the Bank Credit Facility and the MELF Loan 1 and the MELF Loan 2, as
defined below.





In
September 2007, the Company entered into a 10 year, $5.0 million Machinery and
Equipment Loan Fund secured loan with the Commonwealth of Pennsylvania (“MELF
Loan 1”).  This loan bears interest at a fixed rate of 5.0% per annum
and contains customary representations and warranties as well as customary
affirmative and negative covenants similar to those in the Bank Credit Facility,
as amended in October 2008.  Negative covenants include, among others,
limitations on incurrence of liens and secured indebtedness by the Company,
other than in connection with the Bank Credit Facility and the PIDC Credit
Facility. In September 2008, the Company entered into a second 10 year, $5.0
million Machinery and Equipment Loan Fund secured loan with the Commonwealth of
Pennsylvania (“MELF Loan 2”).  The terms and conditions of MELF Loan 2
are substantially the same as MELF Loan 1.  The Company borrowed $5.0
million under MELF Loan 2 in October 2008.





As of
September 26, 2009, the Company was in compliance with the various non-financial
and financial covenants included in the Bank Credit Facility, the PIDC Credit
Facility, the MELF Loan 1 and the MELF Loan 2.





In
September 2007, the Company entered into an agreement which governs the shared
collateral positions under the Bank Credit Facility, the PIDC Credit Facility,
the MELF Loan 1 and the MELF Loan 2 (the “Intercreditor Agreement”), and
establishes the priorities and procedures that each lender has in enforcing the
terms and conditions of each of their respective agreements.  The
Intercreditor Agreement permits the group of banks and their agent bank in the
Bank Credit Facility to have the initial responsibility to enforce the terms and
conditions of the various credit agreements, subject to certain specific
limitations, and allows such bank group to negotiate amendments and waivers on
behalf of all lenders, subject to the approval of each lender.





In order
to hedge a portion of the Company’s exposure to changes in interest rates on
debt associated with the Company’s new manufacturing facilities, the Company
entered into certain variable-to-fixed interest rate swap contracts to fix the
interest rates on a portion of its variable interest rate debt.  In
January 2008, the Company entered into an $8.5 million notional value interest
rate swap contract that increases to $35.0 million by April 2010 with a fixed
LIBOR rate of 3.835% that expires on September 5, 2012.  As of
September 26, 2009, the notional value of the swap was $13.5 million. The LIBOR
rates were subject to an additional credit spread which could range from 125
basis points to 325 basis points and was equal to 325 basis points as of
September 26, 2009.  The Company records as an asset or liability the
cumulative change in the fair market value of the derivative instrument, and as
of September 26, 2009, the Company recorded a liability of $2.0
million.





In May
2008, the Company entered into an $8.0 million notional value interest rate swap
with a fixed LIBOR rate of 2.97% that expires on May 1, 2011.  The
LIBOR rates are subject to an additional credit spread which could range from
125 basis points to 325 basis points and was equal to 325 basis points as of
September 26, 2009.  The Company records, as an asset or liability,
the cumulative change in the fair market value of the derivative instrument, and
as of September 26, 2009, the Company recorded a liability of $0.3
million.





Net cash
used for investing activities for the thirty-nine weeks ended September 26, 2009
totaled $33.9 million, primarily due to capital expenditures related to
investments in the Company’s new manufacturing and distribution
facility.





Net cash
from financing activities for the thirty-nine weeks ended September 26, 2009
totaled $30.2 million, which included a $31.4 million net increase in long-term
debt primarily due to financing the Company’s new manufacturing and distribution
facility.





The
Company currently anticipates that for the foreseeable future, cash flow from
operations, along with the continued availability under the Bank Credit
Facility, the PIDC Credit Facility, the MELF Loan 1 and the MELF Loan 2 will
provide sufficient cash to meet operating and financing
requirements.


-25-





New
Accounting Pronouncements





Refer to
Note 1 of the Notes to condensed consolidated financial statements, included
herein, for a discussion of new accountingpronouncements.





Critical
Accounting Policies and Estimates





Management’s
Discussion and Analysis of Financial Condition and Results of Operations is
based on the condensed consolidated financial statements and accompanying notes
that have been prepared in conformity with GAAP. The preparation of such
condensed consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those
estimates.





Included
in the Company’s Annual Report on Form 10-K for fiscal 2008 (“2008 Form 10-K”)
are the significant accounting policies of the Company, which are described in
Note 1 to the consolidated financial statements, and the critical accounting
estimates, which are described in the Management’s Discussion and Analysis of
Financial Condition and Results of Operations in the 2008 Form
10-K.  Information concerning the Company’s implementation and impact
of new accounting standards is included in Note 1 of the condensed consolidated
financial statements included herein.  Otherwise, there were no
changes in the Company’s critical accounting policies and estimates in the third
quarter of 2009 which had a material impact on the Company’s financial
condition, change in financial condition, liquidity or results of
operations.





Forward-Looking
Statements





Statements
contained in this Quarterly Report on Form 10-Q, including but not limited to
those under the heading  “Management’s Discussion and Analysis,”
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, and are subject to the safe harbor
created by that Act.  Such forward-looking statements are based upon
assumptions by management, as of the date of this Report, including assumptions
about risks and uncertainties faced by the Company.  These
forward-looking statements can be identified by the use of words such as
"anticipate,'' "believe,'' "could,'' "estimate,'' "expect,'' "intend,'' "may,''
"plan,'' "predict,'' "project,'' "should,'' "would,'' "is likely to,'' or "is
expected to'' and other similar terms.  They may include comments
about relocating operations and the funding thereof, legal proceedings,
competition within the baking industry, concentration of customers, commodity
prices, consumer preferences, long-term receivables, inability to develop brand
recognition in the Company’s expanded markets, production and inventory
concerns, employee productivity, availability of capital, fluctuation in
interest rates, pension expense and related assumptions, changes in long-term
corporate bond rates or asset returns that could affect the pension corridor
expense or income, governmental regulations, protection of the Company’s
intellectual property and trade secrets and other statements contained herein
that are not historical facts.





Because
such forward-looking statements involve risks and uncertainties, various factors
could cause actual results to differ materially from those expressed or implied
by such forward-looking statements, including, but not limited to, changes in
general economic or business conditions nationally and in the Company’s primary
markets, the availability of capital upon terms acceptable to the Company, the
availability and pricing of raw materials, the level of demand for the Company’s
products, the outcome of legal proceedings to which the Company is or may become
a party, the actions of competitors within the packaged food industry, changes
in consumer tastes or eating habits, the success of business strategies
implemented by the Company to meet future challenges, the costs to lease and
fit-out a new facility and relocate thereto, the costs and availability of
capital to fund improvements or new facilities and equipment, the retention of
key employees, and the ability to develop and market in a timely and efficient
manner new products which are accepted by consumers.  If any of our
assumptions prove incorrect or should unanticipated circumstances arise, our
actual results could differ materially from those anticipated by such
forward-looking statements.  The differences could be caused by a
number of factors or combination of factors, including, but not limited to,
those factors described in the Company’s 2008 Form 10-K, “Item 1A, Risk
Factors.”  There can be no assurance that the new manufacturing
facility described herein will be successful.  The Company undertakes
no obligation to publicly revise or update such forward-looking statements,
except as required by law.  Readers are advised, however, to consult
any further public disclosures by the Company (such as in the Company’s filings
with the SEC or in Company press releases) on related subjects.


-26-





Item 3.    Quantitative and Qualitative
Disclosures about Market Risk





Not
required for smaller reporting companies.





Item 4.     Controls and
Procedures





(a) Evaluation of Disclosure Controls
and Procedures





The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company’s reports filed or
submitted pursuant to the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure at a reasonable assurance
level that such information is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure.





Management
of the Company, including the Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of the Company’s
disclosure controls and procedures (as defined in the Exchange Act Rule
13a-15(e)) as of September 26, 2009.  Based upon the evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective as of September 26,
2009.





(b)
Changes in Internal Control over Financial Reporting





During the
thirteen weeks ended September 26, 2009, there have been no changes in the
Company’s internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.


-27-





TASTY
BAKING COMPANY AND SUBSIDIARIES





PART II.  OTHER INFORMATION





Item 6.      Exhibits





(a)
            Exhibits:




Exhibit
31 (a) – Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of
2002.





Exhibit
31 (b) – Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of
2002.





Exhibit
32      – Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.






-28-




TASTY BAKING COMPANY AND SUBSIDIARIES
 
 SIGNATURE
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
   TASTY BAKING COMPANY(Company)November 2, 2009
                
                /s/ Paul D. Ridder(Date)
                
                PAUL
      D. RIDDERSENIOR
      VICE PRESIDENTANDCHIEF
      FINANCIAL OFFICER(Principal
      Financial andAccounting
      Officer)








-29-